1. 1 The importance of credit bureau and need of legal framework for it LITHUANIA

2. 2 Ranking of Lithuania in World Bank research Source: World Bank and IFC – Doing Business, http://www.doingbusiness.org/ 10 categories of the research 175 economies research Lithuania is generally very well ranked …. 16th place Different variables, different results Getting Credit … 33 out of 175 economies

3. 3 Roles of credit bureaus in the National Economies Decreases information asymmetries between borrowers and lenders. Increase access to credit for a larger segment of the population. It supports idea of equal conditions for majority of the population. Reduce the general over-indebtedness in the economy and support the idea of civil responsibility of the debtors. Increases credit activity of the financial institutions and reduce the barriers of the small and medium business to get a loan. Stimulate economic growth by increase of consumption and investments in the economy. Press the financial insititutions to decrease the Interest Rates and propose more fair and better conditions on the market

4. 4 Credit Information Coverage by Priv x Pub Bureaus Large Corporates Mid-size Companies Small Businesses Consumers PublicPrivate Public Registries Rating Agencies Commercial Credit Bureaus Consumer Credit Bureaus 1 2 3 1 – Purpose of public registries is banking supervision, while private bureaus seek to help lenders make better credit decisions. However, there is a need for greater differentiation and development of relevant public registries and data sources, e.g. financial statements databases. 2 – The role of public registries vs. private bureaus: What role can national loans registries play and what other public registries or data sources can provide valuable input for private bureaus, e.g. ID data (lost/stolen, unique identifier, tax header information etc.) 3 – Link between consumer and commercial credit reporting very important, in particular for owners of small businesses and directors on SMEs: Closing the gap of information coverage and developing value-added services such as small business scores

5. 5 Private credit bureaus growths

6. 6 Private credit bureaus are associated with lower financial constraints Estimates based on data on 5000 firms in 51 countries Source: Love and Mylenko (2003) % of small firms reporting high financing constraints Probability of obtaining a bank loan for a small firm

7. 7 The most important qualities of credit bureaus 2 3 4 5 6 1 Contain both positive and negative information Contain data on both individuals and firms Contain data from financial institutions and others (retailers, utilities) Contain five or more years of historical data preserved Contain data on all loans Guarantee consumer’s right to inspect their data and amend it

8. 8 Source: Love and Mylenko (2003) Market assessmentLegend:OutreachAdvice on Regulatory FrameworkDiagnostic/Feasibility Study Work which has to be done in Europe - IFC

9. 9 The best practice elements of the PDPA in EU PDPA allowed creation of positive and negative credit bureaus in the individual countries PDPA guarantee once a year the „cost based“ credit report for citizens and they can comply and ask for changes if something is wrong PDPA guarantee that Financial Institutions use the credit reports data for credit risk and business risk prevention and debt collection. PDPA guarantee that data stored in the bureau are not subject of sensitive personal data (health, religion, etc.) PDPA creates the area of cross industrial data exchange for business risk prevention. PDPA helps to minimize the miss interpretations on the market

10. 10 Improtance of business pro-active legal framework Personal Data Protection Act (PDPA) has to create the balanced framework for the rights of citizen (debtors) and rights of financial institutions (creditors). Together with the cross-border exchange of employees and capital, the PDPA has to support the exchange of positive and negative data on debts. The data processing should be organized on the basis of personal consent which is not call-able by data subject. The credit bureau database processing company has to be covered by consent delivered to the financial institutions The PDPA has to support the idea of storage and processing of data about debts with the historical outlook of 4 – 7 years after the termination of the contract.

11. 11 Data items, which credit bureaus exchange Personal ID – Personal ID is important to protect the miss-matching situation in the credit bureau database. Contact adresses – The adresses of applicant, co-applicant, guarantor, employer, etc. The type of the loan or service – The majority of data are on consumer loans, credit cards, mortgages,overdrafts, paid and unpaid bills, etc. The payment history of the loan – The credit bureau usually stores detailed 1 year history of existing contracts and 4 – 7 history of terminated contracts The type of guarantee – The type of guarantee is important to prevent the fraud and minimize the future potential difficulties

12. 12 Data security and miss-use of the data The credit bureau is build on trust, but the trust is not enough. The credit bureau system has to be very secure and there has to be real possibility to control any access to the bureau. The credit bureau has to be supervised either by financial institutions authority or by personal data protection authority. The credit bureau company has to have a right to review and control the activity of individual user to prevent the miss-use of the data. The users and data providers have to be able to confirm the existence of the consent of the customer. The information system security audit is neccesary to repeat every 2 years. The credit bureau has to be transparent and all major rules and guidelines should be open to public control.

13. 13 Credit Bureau influence on Economy The high credit activity can help a lot to increase overall consumption and investments in the country The credit bureau improves a lot the credit activity in the country The PDPA enables creation of fully positive x negative credit bureau This could INCREASE GDP of the country for 1% – 2%

14. 14 THANK YOU….